MERCY CORPS AND AFFILIATES Consolidated Financial Statements and Supplemental Schedules June 30, 2014 (With Independent Auditors’ Report Thereon)

MERCY CORPS AND AFFILIATES

Table of Contents

Page(s)

Independent Auditors’ Report 1–2

Consolidated Financial Statements:

Consolidated Statement of Financial Position 3

Consolidated Statement of Activities 4

Consolidated Statement of Cash Flows 5

Consolidated Statement of Functional Expenses 6

Notes to Consolidated Financial Statements 7–28

Supplemental Schedules 29

Schedule I – Supplemental Schedule – Mercy Corps Statement of Financial Position 30

Schedule II – Supplemental Schedule – Mercy Corps Statement of Activities 31

KPMG LLP Suite 3800 1300 South West Fifth Avenue Portland, OR 97201

Independent Auditors’ Report

The Board of Directors Mercy Corps and affiliates:

We have audited the accompanying consolidated financial statements of Mercy Corps and affiliates, which comprise the consolidated statement of financial position as of June 30, 2014, and the related consolidated statements of activities, cash flows, and functional expenses for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mercy Corps and affiliates as of June 30, 2014, and the changes in their net assets, cash flows, and functional expenses for the year then ended, in accordance with U.S. generally accepted accounting principles.

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Report on Summarized Comparative Information We have previously audited Mercy Corps and affiliates 2013 consolidated financial statements, and we expressed an unmodified audit opinion on those consolidated financial statements in our report dated November 4, 2013. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2013 is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

Other Matter Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplemental information included in schedules I and II is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

Portland, Oregon October 31, 2014

2

MERCY CORPS AND AFFILIATES Consolidated Statement of Financial Position June 30, 2014 With comparative financial information as of June 30, 2013 (In thousands)

Assets 2014 2013 Cash $ 69,161 63,621 Financial instruments and derivatives, net 3,866 3,725 Grants and accounts receivable 15,985 11,679 Microfinance loans receivable, net 79,597 77,042 Due from unconsolidated affiliates, net 7,873 8,864 Inventories 5,833 7,503 Prepaid expenses, deposits, and other assets 7,049 6,720 Pledges receivable, net 2,512 955 Notes receivable 10,988 10,988 Investments 4,621 3,871 Program-related investments 5,352 6,562 Property and equipment, net 40,457 41,915 Total assets $ 253,294 243,445 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 35,032 28,748 Deferred revenue 38,595 38,834 Subsidiary and subordinated debt for microfinancing activities 81,325 74,228 Long-term debt 24,312 24,330 Total liabilities 179,264 166,140 Net assets: Unrestricted 53,030 57,071 Temporarily restricted 21,000 20,214 Permanently restricted — 20 Total net assets 74,030 77,305 Total liabilities and net assets $ 253,294 243,445

See accompanying notes to consolidated financial statements.

3 MERCY CORPS AND AFFILIATES Consolidated Statement of Activities Year ended June 30, 2014 With summarized financial information for the year ended June 30, 2013 (In thousands)

Temporarily Permanently 2013 Unrestricted restricted restricted Totals Total Operating support and revenue: Public support and revenue: Government grants $ 172,598 — — 172,598 159,667 Material aid 12,406 — — 12,406 11,099 Material aid – monetized 9,924 — — 9,924 9,200 Total public support and revenue 194,928 — — 194,928 179,966 Private support and revenue: Other grants 47,183 11 — 47,194 32,370 Contributions 22,623 13,336 — 35,959 25,020 Gifts in kind – services 574 — — 574 672 Total private support and revenue 70,380 13,347 — 83,727 58,062 Other revenue: Interest income 27,005 — — 27,005 27,468 Other revenue 1,067 — — 1,067 1,825 Total other revenue 28,072 — — 28,072 29,293 Net assets released from restriction 12,581 (12,561) (20) — — Total operating support and revenue 305,961 786 (20) 306,727 267,321 Operating expenses: Program services: Humanitarian assistance – relief 86,172 — — 86,172 62,074 Humanitarian assistance – recovery 15,678 — — 15,678 16,313 Livelihood/economic development 79,585 — — 79,585 83,952 Civil society and education 46,056 — — 46,056 43,900 Health 33,475 — — 33,475 25,619 Total program services 260,966 — — 260,966 231,858 Supporting services: General and administrative 33,411 — — 33,411 28,730 Resource development 14,490 — — 14,490 11,485 Total supporting services 47,901 — — 47,901 40,215 Total operating expenses 308,867 — — 308,867 272,073 Change in net assets from operations (2,906) 786 (20) (2,140) (4,752) Nonoperating revenue and losses net: Foreign currency exchange loss, net (2,566) — — (2,566) (932) Realized and unrealized gain (loss) on investments, net (808) — — (808) 536 Unrealized gain on swap agreements 1,743 — — 1,743 214 Other nonoperating (decrease) increase in net assets 496 — — 496 (171) Total nonoperating revenue and losses net (1,135) — — (1,135) (353) Change in net assets (4,041) 786 (20) (3,275) (5,105) Net assets at beginning of year 57,071 20,214 20 77,305 82,410 Net assets at end of year $ 53,030 21,000 — 74,030 77,305

See accompanying notes to consolidated financial statements.

4 MERCY CORPS AND AFFILIATES Consolidated Statement of Cash Flows Year ended June 30, 2014 With summarized financial information for the year ended June 30, 2013 (In thousands)

2014 2013 Cash flows from operating activities: Change in net assets $ (3,275) (5,105) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 4,210 4,332 Provision for loan losses 929 559 Net realized and unrealized loss on investments 3,206 429 Unrealized gain on interest rate and foreign exchange swaps (1,743) (214) Loss on disposition of fixed assets 1,578 226 Changes in assets and liabilities: Grants and accounts receivable (4,334) (259) Due from unconsolidated affiliates, net 991 (751) Inventories 1,670 (502) Prepaid expenses, deposits, and other assets 1,272 (140) Pledges receivable (1,557) 1,564 Accounts payable and accrued liabilities 4,591 2,819 Deferred revenue (239) 5,923 Net cash provided by operating activities 7,299 8,881 Cash flows from investing activities: Purchase of investments (306) (252) Issuances of microfinance loans, net (3,484) (12,806) Acquisition of property and equipment (4,330) (3,594) Disposition of entities (718) — Net cash used in investing activities (8,838) (16,652) Cash flows from financing activities: Repayment of notes receivable — 81 Proceeds from borrowings by microfinance entities 56,321 41,251 Repayments on borrowings of microfinance entities (49,224) (27,747) Repayments on long-term debt (18) (1,028) Net cash provided by financing activities 7,079 12,557 Net increase in cash and cash equivalents 5,540 4,786 Cash at beginning of year 63,621 58,835 Cash at end of year $ 69,161 63,621 Supplemental disclosures: Interest paid during the year $ 10,356 7,028 Noncash contributions 12,980 11,771

See accompanying notes to consolidated financial statements.

5 MERCY CORPS AND AFFILIATES Consolidated Statement of Functional Expenses Year ended June 30, 2014 With summarized financial information for the year ended June 30, 2013 (In thousands)

Program services Support services Humanitarian Humanitarian Livelihood/ Civil Total assistance – assistance – economic society and program General and Resource Total 2013 relief recovery development education Health services administration development expenses Total Personnel $ 16,193 5,098 16,437 12,723 9,348 59,799 22,450 6,329 88,578 77,763 Professional services 2,449 1,094 3,107 1,636 411 8,697 1,116 1,486 11,299 12,556 Travel and vehicle expense 3,204 885 3,093 1,982 1,868 11,032 4,216 567 15,815 13,316 Office and occupancy expense 3,270 677 2,269 1,565 1,504 9,285 2,546 3,868 15,699 13,403 Other operating expenses 375 104 1,996 345 157 2,977 1,500 2,204 6,681 9,642 Material aid 4,197 — — — 8,159 12,356 50 — 12,406 11,100 Materials and supplies 39,992 729 2,816 1,960 2,391 47,888 11 — 47,899 27,011 Construction, nonowned assets 4,004 416 3,081 2,173 2,435 12,109 — — 12,109 11,840 Training, monitoring, and evaluation 2,120 1,002 2,858 4,080 1,184 11,244 30 — 11,274 9,342 Subgrants 9,989 5,558 13,642 19,048 5,630 53,867 155 — 54,022 58,048 Microfinancing activity — — 28,876 — — 28,876 — — 28,876 23,739 Depreciation 379 115 1,410 544 388 2,836 1,337 36 4,209 4,313 $ 86,172 15,678 79,585 46,056 33,475 260,966 33,411 14,490 308,867 272,073

See accompanying notes to consolidated financial statements.

6 MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(1) Organization and Purpose Mercy Corps, headquartered in Portland, Oregon, is incorporated under the laws of the state of Washington as a nonprofit corporation. Mercy Corps’ mission is to alleviate suffering, poverty, and oppression by helping people build secure, productive, and just communities around the globe.

Mercy Corps’ Vision for Change, based on the Universal Declaration of Human Rights, is that peaceful, secure, and just societies emerge when the private, public, and civil society sectors are able to interact with accountability, inclusive participation, and mechanisms for peaceful change.

Mercy Corps’ Strategy is to work in countries in transition, where communities are suffering and recovering from disaster, conflict, or economic collapse. Mercy Corps’ experience demonstrates that during these times of turmoil and tragedy, there exists the possibility for positive change. Mercy Corps adds its greatest value as an international relief and development agency by supporting those kernels of positive change with community-led and market-driven action.

Mercy Corps operates programs in more than 42 countries throughout the world. Mercy Corps classifies its program activities into five major types: Humanitarian Assistance – Relief, Humanitarian Assistance – Recovery, Livelihood and Economic Development, Civil Society and Education, and Health.

The consolidated financial statements include the accounts of Mercy Corps and its controlled affiliates, collectively, “the Organization” or “Mercy Corps.” All material intercompany transactions and balances have been eliminated. Consolidated affiliates include:

Mercy Corps Foundation (MCF) Mercy Corps Headquarters Manager, Inc. Mercy Corps Headquarters Building, LLC Mercy Corps Headquarters Master Tenant Manager, LLC Mercy Corps Headquarters Master Tenant, LLC Kompanion Financial Group Microfinance Closed Joint Stock Company Kompanion Development Institution Asian Credit Public Fund Hunchun Association for Poverty Alleviation in the Tumen River Area Yanbian Association for Poverty Alleviation in the Tumen River Area Yayasan Microfinance Innovation & Resource Center Foundation Mercy Enterprise Corporation (MEC) d/b/a Mercy Corps Northwest Mercy Corps India, Not For Profit, Joint Stock Company Mercy Corps International, Jordan Yayasan Mercy Corps Indonesia MC Egypt, LLC Custom Clouds Public Benefit Corporation Mercy Corps China Holdings, LLC MC Nigeria (Limited by Guarantee)

7 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(2) Summary of Significant Accounting Principles (a) Basis of Accounting The accompanying consolidated financial statements of the Organization have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles.

Net assets are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the Organization’s net assets and changes therein are classified and reported as follows:

• Unrestricted net assets – net assets that are not subject to donor-imposed restrictions. • Temporarily restricted net assets – net assets that are subject to donor-imposed restrictions that permit the Organization to use or expend the assets as specified. The restrictions are satisfied either by the passage of time or by actions of Mercy Corps. • Permanently restricted net assets – net assets that are subject to donor-imposed restrictions that are maintained in perpetuity by the Organization unless an action by the donor or courts removes the restriction.

(b) Use of Estimates The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in the Organization’s consolidated financial statements include loan loss reserves, fair value of investments, functional expense allocations, and net realizable value of pledges receivables. Actual results may differ from those estimates.

(c) Revenue Recognition Contributions, including unconditional promises to give, are recognized initially at fair value as revenue in the period received at net realizable value. Contribution revenues are reported as increases in unrestricted net assets unless their use is limited by donor-imposed restrictions.

Funds provided under grant or contract, which are not considered contributions, are deemed to be earned and reported as revenue when Mercy Corps has either incurred expenditures or completed the deliverables in compliance with the specific terms and conditions of the grant or contract. Grant or contract funds received for which no corresponding expenditure or performance has yet been made are accounted for as deferred revenue. Expenditures and performance made in advance of funds received are recorded as grants or accounts receivable.

Donated services that meet the criteria for recognition in accordance with generally accepted accounting principles are reported as gift-in-kind services and expenses in amounts equal to their estimated fair value on the date of receipt. Approximately $574 and $672 of legal services were provided pro bono to the Organization in 2014 and 2013, respectively. 8 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Commodities are received and reported at fair value and recognized as revenue as the commodities are distributed for program purposes.

Gifts in kind and contributions of fixed assets and materials are reported as contributions at their estimated fair values on the date of receipt and reported as expense when utilized.

(d) Functional Allocation of Expenses The Organization allocates expenses on a functional basis among its various programs and supporting services. Expenses that can be identified with a specific program or supporting service are charged directly. Other expenses that are common to several functions are allocated by various statistical bases.

(e) Change in Net Assets from Operations Change in net assets from operations excludes activities that Mercy Corps considers to be outside the scope of its business, as defined by their mission statement.

(f) Foreign Currency Translation Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on reporting dates, and revenues and expenses are translated at rates that approximate the average rate for the period in which the transactions occurred. Net transaction and translation gains and losses are included in the accompanying statements of activities in the nonoperating revenue and expenses section as foreign currency exchange gain or loss.

(g) Income Taxes Mercy Corps has been granted tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and corresponding sections of the state of Washington provisions as a publicly supported Organization, which is not a private foundation.

Accounting principles generally accepted in the United States of America require Mercy Corps’ management to evaluate tax positions taken by Mercy Corps and recognize a tax liability (or asset) if Mercy Corps has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. Management has analyzed tax positions taken by Mercy Corps and has concluded that as of June 30, 2014, there are no uncertain positions taken or expected to be taken that would require recognition of liability (or asset) or disclosure in the financial statements. Mercy Corps is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Mercy Corps’ management believes it is no longer subject to income tax examinations for years prior to 2011.

(h) Cash Cash consist of short-term, highly liquid investments with original maturities of three months or less at the date of acquisition.

9 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Certain cash accounts are maintained as separate accounts that represent cash held in trust or as collateralized cash. These types of accounts totaled $2,669 and $2,589 at June 30, 2014 and 2013, respectively.

(i) Investments The Organization holds various types of investments, including money market accounts, mutual funds and managed accounts. Investments are recorded at fair value. Interest earned on funds is included in interest income. Dividends are included in other revenue. There are no significant concentrations as the investment portfolio is diversified among issuers.

(j) Charitable Gift Annuities The Organization has a certificate of authority from the state of Oregon and from the state of Washington and a few other states to receive transfers of money or property upon agreement to pay an annuity. The annuity assets included in investments was $613 and $603 as of June 30, 2014 and 2013, respectively. The annuity liability included in other liabilities as of June 30, 2014 and 2013 was $346 and $396, respectively. The Organization maintains trust accounts for all gift annuities. The amounts under trust were $618 and $617 as of June 30, 2014 and 2013, respectively. No annuity contracts have been issued in the state of Washington as of June 30, 2014.

(k) Derivative Financial Instruments Derivative financial instruments include foreign currency swaps held by the consolidated microfinance institutions, and an interest rate swap on the building debt. The Organization utilizes these strategies to minimize risk associated with fluctuations in both interest rates and foreign currency exchange rates. Derivatives are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of the interest rate swaps are recognized currently as an unrealized gain or loss on swap agreements in nonoperating revenue and expenses, net.

(l) Fair Value Measurements The Organization applies the accounting standard, Fair Value Measurements and Disclosures (ASC 820), that established a framework for measuring fair value. This standard defines the fair value as the amount that would be exchanged for an asset or to transfer a liability in an orderly transaction between market participants at the measurement date.

10 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

The standard establishes a three-level fair value hierarchy that prioritizes the valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the whole term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available.

The Organization used the following methods and significant assumptions to estimate fair value for its assets measured and carried at fair value in the consolidated financial statements:

Investments – Fair values for these investments are based on quoted market prices (Level 1).

Derivative financial instruments – The fair value of the Organization’s interest rate and currency swaps are based on estimates using standard pricing models that take into account the present value of future cash flows as of the date of the statements of financial position. The fair values of the interest and currency rate swaps are based on models that rely on observable market-based data (Level 2).

(m) Fair Value of Financial Instruments The carrying value of cash, grants and other receivables, loans receivable and payable approximates their estimated fair value as of June 30, 2014 and 2013, due to the relative short maturities of these instruments. However, the inputs to these fair value estimates are considered Level 3 in the fair value hierarchy. The carrying value of variable rate long-term debt approximates fair value as such changes are captured in the changing interest rate rather than a change in the instrument value. The inputs to their fair value estimates are considered Level 2 in their fair value hierarchy. In accordance with ASC Subtopic 825-10-50, Financial Instruments – Overall – Disclosures, management has determined that it is not practicable to estimate the fair value of notes receivable, subsidiary and subordinated debt for microfinancing activities, and fixed rate long-term debt due to the unique nature of each of these transactions. None of these transactions have available quoted market equivalents. Additional information about matters affecting the fair value, such as current interest rates and maturities, is included at note 5 for notes receivable, note 9 for long-term debt, and note 10 for subsidiary and subordinated debt for microfinancing activities.

11 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(n) Grants and Accounts Receivable The majority of the Organization’s grants and accounts receivable are due from private foundations and federal agencies. Grants and accounts receivable are expected to be collected within one year and are recorded at net realizable value.

Pledges receivable and notes receivable that are expected to be collected in future years are recorded at fair value at the date of the contribution, as determined using the net present value of estimated future cash flows. These inputs to the fair value estimate are considered Level 3 in the fair value hierarchy. In subsequent periods, the discount rate is unchanged and the allowance for uncollectible contributions is reassessed and adjusted if necessary. Amortization of the discounts is recorded as additional contribution revenue.

(o) Microfinance Loans Receivable Financial services are an essential element of the Organization’s integrated approach to helping people. In this sector, the Organization has established microfinance institutions (MFIs), structured loan guarantee programs, built capacity in existing MFIs, and created service organizations to contribute to the development of the overall microfinance industry. Activities from these services are reported as livelihood/economic development program expense in the consolidated statements of activities, and it is the Organization’s intent to reinvest all proceeds generated back into mission-related programs.

The following MFIs and MFI technical assistance organizations are consolidated in the accompanying consolidated financial statements.

Kompanion Financial Group Microfinance Closed Joint Stock Company (Kompanion), a for-profit entity, was formed in 2004 in the Kyrgyz Republic to engage in microfinance activities. Mercy Corps is the Founder and only shareholder of Kompanion.

Asian Credit Public Fund (ACF) was formed in 2001, and is registered in the Republic of Kazakhstan as a nonprofit nonmember organization to carry out certain types of banking operations. Mercy Corps is the Founder of ACF. Prior to 2014, ACF, along with Mercy Corps, owned 100% of Asian Credit Fund, Microcredit Organization, Limited Liability Company (ACF, MCO LLC), a for-profit commercial microcredit organization in the Republic of Kazakhstan. In April of 2014, ACF, MCO LLC sold 41% of its shares to a third party, resulting in a 24% ownership in ACF, MCO LLC for ACF and 35% ownership for Mercy Corps.

Hunchun Association for Poverty Alleviation in the Tumen River Area and the Yanbian Association for Poverty Alleviation in the Tumen River Area (collectively, the PATRAs) were formed in 2002 and 2003, respectively, as a means toward the alleviation of poverty and suffering in certain areas in China. These organizations are registered under Chinese law and are considered local projects of Mercy Corps. Under a Memorandum of Understanding, Mercy Corps controls the PATRA entities.

12 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

In 2001, Mercy Corps established Mercy Enterprise Corporation (MEC), dba Mercy Corps Northwest, as a nonprofit corporation under the laws of the state of Oregon in order to provide economic development services to low-income populations in the states of Oregon and Washington. Mercy Corps maintains control of the board of directors along with control and management of MEC’s programs.

Yayasan Microfinance Innovation & Resource Center Foundation (MICRA Indonesia) was formed in 2006 in Indonesia to provide technical assistance to the development, improvement and progress of the microfinance industry sector. The Foundation is controlled by an Advisory Board, composed of Mercy Corps employees.

Microfinance loans receivable are recorded in the consolidated statements of financial position at their unpaid principal balances net of allowance for loan losses. Interest income is accrued based on the outstanding principal amount and contractual terms of each individual loan. The Organization reviews its loans to assess impairment on a regular basis. A loan is considered impaired when, based on current information, it is probable that the Organization will not receive all amounts due in accordance with the contractual terms of the underlying loan agreement. When an impairment loss has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan receivable and the present value of the estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan receivable’s original effective interest rate. All loan receivable losses are recognized in the consolidated statements of activities. When a loan is uncollectible, it is written off against the related reserve for loan impairment. Loan balances are written off when management determines that the loans are uncollectible and when all necessary steps to collect the loan are exhausted.

(p) Inventories and Material Aid The Organization receives agricultural commodities from governments for distribution via Organization programs and for monetization in which proceeds of the commodity sale are to be used to fund Organization programs. Commodities received for distribution are recorded at estimated fair value as inventory and deferred revenue. Revenue is recognized as inventory is distributed, and is recorded in the consolidated statements of activities as “Material aid.” Funds received from monetization of commodities are deferred until utilized in program activities. Revenue earned from monetization proceeds is recognized in the consolidated statements of activities as “Material aid – monetized.”

Material aid commodities received from the U.S. government that are held for sale are valued at the lesser of the fair value on the contribution date or the expected sales price in the foreign location, if impaired. Material aid commodities held for distribution and not for sale are valued at estimated fair value.

(q) Program-Related Investments Program-related investments represent the Organization’s investments in domestic and overseas organizations that do not meet the standard of control for consolidation under U.S. generally 13 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

accepted accounting principles. The investments are typically in the form of equity investments funded with grants or the Organization’s unrestricted funds. The primary purpose of these investments is the furtherance of the Organization’s mission rather than the generation of income. Investments are recorded on either the cost or equity method, depending on the Organization’s level of ownership and influence over the entities.

(r) Property and Equipment, Net Land, buildings, and equipment are stated at acquisition cost or fair value on date of contribution. Depreciation is computed on a straight-line basis over the shorter of the estimated useful lives of the respective assets or the related lease term. The estimated useful lives by asset class are as follows: Years Buildings 30–39 Leasehold improvements 3–30 Furniture, fixtures and equipment 3–10 Vehicles 3–5

The Organization has adopted a policy of applying a time restriction that expires over the useful life of the long-lived assets acquired, or constructed with contributions restricted for that purpose, and therefore, releases amounts from temporarily restricted net assets ratably over the same useful life.

(s) Reclassifications Certain reclassifications have been made to prior years’ amounts to conform to the current year presentation.

14 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(3) Fair Value of Financial Instruments and Investments Fair value measurements for the assets measured at fair value on a recurring basis at June 30, 2014 consisted of the following: Level 1 Level 2 Total Assets: Investments: Mutual Funds – equity $ 3,857 — 3,857 Mutual Funds – fixed income 764 — 764 Total investments 4,621 — 4,621 Derivative financial instruments: Foreign currency swap arrangements — 4,032 4,032 Total 4,621 4,032 8,653 Liabilities: Derivative financial instruments: Interest rate swaps — 166 166 Total — 166 166 Financial instruments and derivatives, net $ 4,621 3,866 8,487

15 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Fair value measurements for the assets measured at fair value on a recurring basis at June 30, 2013 consisted of the following: Level 1 Level 2 Total Assets: Investments: Mutual funds – equity $ 1,421 — 1,421 Mutual funds – fixed income 2,097 — 2,097 Common stocks 353 — 353 Total investments 3,871 — 3,871 Derivative financial instruments: Foreign currency swap arrangements — 4,117 4,117 Total 3,871 4,117 7,988 Liabilities: Derivative financial instruments: Interest rate swaps — 392 392 Total — 392 392 Financial instruments and derivatives, net $ 3,871 3,725 7,596

Mercy Corps had no Level 3 assets or liabilities measured at fair value at June 30, 2014 and 2013.

(4) Pledges Receivable Unconditional promises to give are included in the consolidated financial statements as pledges receivable and revenue of the appropriate net asset category. Pledges receivable are expected to be collected in future years and are recorded after discounting at 0.11% to 1.41% to the present value of expected future cash flows.

Unconditional promises are expected to be collected in the following periods: 2014 2013 One year or less $ 2,248 621 Between one year and five years 273 343 2,521 964 Less discount (9) (9) Pledges receivable, net $ 2,512 955

16 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(5) Notes Receivable At June 30, 2014 and 2013, notes receivable comprise the following: 2014 2013 Mercy Corps Investment Fund, LLC, interest at 4.75%, matures April 1, 2015 $ 10,988 10,988

As discussed further at note 9, Mercy Corps Investment Fund, LLC, is a third-party entity controlled by U.S. Bank, and therefore, it is not consolidated into the Organization’s financials.

(6) Microfinance Loans Receivable Microcredit loans comprise variable and fixed-rate loans with individuals and groups. Group loans are unsecured loans granted to a group of borrowers who sign a loan agreement with joint and several liability to repay a loan. The loans bear interest at rates generally at or below the local market industry average available. Microcredit loans are issued with original maturities ranging from 3 to 36 months. Individual microcredit loans are generally secured by business assets.

Microfinance loans receivable were concentrated in the following countries as of June 30, 2014 and 2013: 2014 2013 China $ 1,467 1,213 Kazakhstan — 4,979 Kyrgyzstan 81,414 73,860 Other 757 766 83,638 80,818 Less loan loss reserves (4,041) (3,776) Microfinance loans receivable, net $ 79,597 77,042

The Organization applies ASC 310, Receivables, for financing receivables and the corresponding allowance for losses.

Allowances for estimated losses are established based on prior collection experience and observed trends in the rate of default, as well as a consideration of current economic trends and indicators. Loan balances are written off when they are deemed to be ultimately uncollectible.

17 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Changes in allowance for estimated losses on financing receivables as of June 30, 2014 and 2013 are presented as follows: 2014 2013 Loan loss reserve, beginning $ (3,776) (3,270) Adjustments to reserve (814) (1,176) Write-off 560 671 Recovery (11) (1) Loan loss reserve, ending $ (4,041) (3,776)

The reserves noted above can be attributed to loans that are past due or current as follows at June 30, 2014: Current Past due Total Microfinance loans receivable $ 82,951 687 83,638 Less loan loss reserves (4,006) (35) (4,041) Microfinance loans receivable, net $ 78,945 652 79,597

The reserves noted above can be attributed to loans that are past due or current as follows at June 30, 2013: Current Past due Total Microfinance loans receivable $ 80,473 345 80,818 Less loan loss reserves (3,478) (298) (3,776) Microfinance loans receivable, net $ 76,995 47 77,042

(7) Property and Equipment 2014 2013 Land $ 3,815 3,815 Buildings and leasehold improvements 37,522 37,264 Vehicles 10,339 10,427 Furniture, fixtures, and equipment 8,866 7,406 Property and equipment 60,542 58,912 Less accumulated depreciation and amortization (20,085) (16,997) Property and equipment, net $ 40,457 41,915

18 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(8) Program-Related Investments The Organization’s program-related investments at June 30 are as follows: 2014 2013 PT Bank Andara, Indonesia $ 3,342 5,323 ACF, MCO, LLC 805 — TenGer Financial Group LLC, Mongolia 624 624 Kompanion Invest 325 348 MICRO 211 222 MEVCF 45 39 Other — 6 $ 5,352 6,562

PT Bank Andara (Andara), a limited liability company, was organized under the laws of the Republic of Indonesia in 2009 by an investor consortium, led by Mercy Corps. Mercy Corps founded Bank Andara to deliver innovative financial services to millions of low-income Indonesian families. Andara serves as the strategic banking partner to the Indonesian microfinance sector, which encompasses over 50,000 institutions. At June 30, 2014 and 2013, the Organization owned 22.1%, respectively, of the outstanding shares of Andara. This investment is reported on the equity method of accounting. The summarized financial data for Andara is as follows: 2014 2013 Total assets $ 85,288 133,269 Total liabilities (70,103) (109,081) Total equity $ 15,185 24,188 Total operating revenue $ 15,460 14,542 Total operating expense (19,636) (14,123) Nonoperating (loss) gain (1,495) 177 Net (loss) gain $ (5,671) 596

In April 2014, ACF MCO, LLC sold 41% of its shares to a third party. Mercy Corps now owns 35% directly and reports this investment on an equity basis.

TenGer Financial Group, LLC (TenGer) is a Mongolian company, whose largest holding is XacBank. XacBank was formed in 2001 through a combination of microfinance activities from local nonbank financial institutions. Mercy Corps was one of the initial funders of this entity through a variety of investments that started in December 1999, when Mercy Corps formed a for-profit, nonbanking institution whose mission was to serve the credit needs of small and medium enterprises (SMEs) in the Mongolian

19 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Gobi region. At June 30, 2014 and 2013, the Organization owned 7.5% of the outstanding shares of TenGer. This investment is recorded on the cost basis.

Kompanion Invest LLC was formed in Kyrgyzstan in October 2011 to provide a bank based on the Shariah principles. The organization is owned 99.9% by Kompanion. Mercy Corps does not consolidate Kompanion Invest due to its immaterial financial impact to Mercy Corps, but does report the investment on an equity basis.

MICRO Insurance Catastrophe Risk Organization SCC and MiCRO Insurance Catastrophe Risk Organization Cell A (MICRO) were formed in March 2011 to engage in the insurance business to achieve alleviation of poverty in Haiti and elsewhere in the Caribbean region by providing immediate relief to the economically disadvantaged in the event of future natural disasters. At June 30, 2014 and 2013, Mercy Corps owned 62.5% of MiCRO – SCC and 23.3% of MiCRO – Cell A. Mercy Corps reports the investment in MICRO’s on an equity basis.

In fiscal 2011, Mercy Corps invested in the Middle East Venture Capital Fund, L.P. (MEVCF). The purpose of MEVCF is a venture capital fund focusing primarily on stimulating economic development by making investments sized businesses in the information and communications technology sectors. At June 30, 2014 and 2013, Mercy Corps owned less than 2% of this fund. The investment is recorded on a cost basis.

Mercy Corps has other small investments in various entities recorded on a cost basis. These investments are made in line with the mission of Mercy Corps to partner with developing social enterprises.

(9) Debt On September 14, 2009, Mercy Corps occupied a new headquarters building in Portland, Oregon. Financing for the $38 million project was provided by a Mercy Corps capital campaign, commercial loans, sale of a condominiumized unit, and both New Market Tax Credit (NMTC) and Federal Historic Tax Credit (FHTC) funding.

Mercy Corps Investment Fund, LLC (MCIF) is the investor for the NMTC program. MCIF is funded by a commercial loan, a loan from Mercy Corps Foundation and equity investment from a private investor. As the NMTC program investor, MCIF is required to make Qualified Equity Investments (QEIs) in eligible Community Development Entities (CDEs) with available tax credit allocations. MCIF contributed QEI funds to three separate CDEs. Each of the three CDEs used the QEI funds, through designated sub-CDEs, to make Qualified Low-Income Community Investments (QLICIs) in the form of loans to Mercy Corps Headquarters Building, LLC, as a Qualified Active Low-Income Community Investment Business (QALICB). Mercy Corps does not control or have an interest in MCIF or in the sub-CDEs, and accordingly, MCIF and the sub-CDEs are not consolidated in Mercy Corps’ consolidated financial statements. Mercy Corps guarantees MCIF’s commercial loan. The guaranty requires that Mercy Corps set aside funds monthly into a bank-controlled account, the balance at June 30, 2014 of $620 is reported as a deposit on Mercy Corps’ consolidated statement of financial position.

20 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Mercy Corps Headquarters Building, LLC’s (Building) sole purpose is to function as a QALICB. Building is funded by QLICI loans from sub-CDEs, FHTC equity investment from Mercy Corps Headquarters Master Tenant, LLC (Tenant), and other equity investment from Mercy Corps Headquarters Manager, Inc. (Manager).

At June 30, long-term debt consisted of the following: 2014 2013 NCF Sub-CDE, LLC: Interest rate of LIBOR+1.9% (2.06% at June 30, 2014 and 2.09% at June 30, 2013) for 28.12% of the outstanding principal balance and a fixed rate of 4.11% for 71.88% of the outstanding principal balance. Interest only payments are due monthly, until the loan matures on March 3, 2038, secured by real property $ 9,801 9,801 NNMF Sub-CDE III, LLC: Interest rate of LIBOR+1.9% (2.06% at June 30, 2014 and 2.09% at June 30, 2013) for 28.12% of the outstanding principal balance and a fixed rate of 3.67% for 71.88% of the outstanding principal balance. Interest only payments are due monthly, until the loan matures on March 19, 2038, secured by real property 7,275 7,275 USBCDE Sub-CDE XX, LLC: Interest rate of LIBOR+1.9% (2.06% at June 30, 2014 and 2.09% at June 30, 2013) for 28.12% of the outstanding principal balance and a fixed rate of 3.35% for 71.88% of the outstanding principal balance. Interest only payments are due monthly, until the loan matures on March 19, 2038, secured by real property 6,930 6,930 Portland Development Commission: Interest is variable (1% at June 30, 2014 and 2013), payable in monthly principal and interest installments, with a balloon payment due in March 2018, secured by real property 306 324 $ 24,312 24,330

21 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Future maturities of long-term debt outstanding at June 30, 2014 are as follows: Year ending: 2015 $ 14 2016 15 2017 16 2018 261 2019 — Thereafter 24,006 Total $ 24,312

(a) Line of Credit The Organization has a $3,500 line of credit commitment with a bank for working capital purposes, which bears interest at a Base Rate (higher of Prime, LIBOR plus 1.50%, or Fed Funds Rate plus 1.50%) or LIBOR plus 2.15%, depending on the term selected by the Organization and a fee of 0.50% on the unused portion of the line of credit. The line is collateralized by a security interest in the Organization’s nonbuilding assets and was renewed on July 1, 2013 and expires on March 1, 2015. During 2014 and 2013 there were no borrowings during the year and as of June 30, 2014 and 2013, the Organization has no outstanding borrowings under the line of credit.

(b) Covenants The credit agreements under the building financing arrangements, and the line of credit bank contain certain restrictive covenants that require, among other things, that the Organization maintain certain fixed charge coverage ratios and minimum levels of unrestricted cash and cash equivalents.

(10) Subsidiary and Subordinated Debt for Microfinancing Activities Microfinancing debt proceeds are primarily used to finance the Organization’s microfinance lending activities. Typically, this debt is not collateralized and principal payments are expected to be made from the flow of cash from collection of the MFI loan receivables. Mercy Corps does not guarantee the repayment on this debt. Payment terms on these loans vary.

22 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Debt maturities as of June 30, 2014 were as follows: Year ending: 2015 $ 23,888 2016 25,985 2017 18,752 2018 9,634 2019 100 Thereafter 2,966 $ 81,325

The above debt represents obligations of the following subsidiaries of Mercy Corps: 2014 2013 Mercy Enterprise Corporation $ 1,263 1,002 Kompanion 80,062 66,396 ACF, MCO, LLC — 6,830 $ 81,325 74,228

23 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

Interest rates of subsidiary borrowings at June 30, 2014 are as follows:

Subsidiary Lender Interest rates Balance Mercy Enterprise Corporation Various 0.00%–2.00% $ 1,263 Kompanion BistumEssen 7.25%–7.40% 5,619 Kompanion BlueOrchard 6.90%–7.25% 6,894 Kompanion Calvert Social Invest 7.00% 1,515 Kompanion Deutsche Bank 10.50% 6,121 Kompanion Dual Return 16.25% 700 Kompanion EBRD Various 5,377 Kompanion Frontiers 16.50% 1,536 Kompanion Global Commercial 7.25% 2,024 Kompanion IFC 6 months STB + 7.75% 2,722 Kompanion Incofin 6.75%–7.50% 9,587 Kompanion MinFln 8.00% 2,259 Kompanion Netri Private 5.25% 605 Kompanion Oikocredit Various 4,267 Kompanion RES_CrSuisse 7.25% 2,787 Kompanion RES_SICAV 7.25% 7,944 Kompanion SNS Institutional Fund 6.50% 3,089 Kompanion Symbiotics 6.75%–7.25% 8,660 Kompanion Triodos 7.25% 8,356 $ 81,325

The above debt also includes subordinated debts of $6,269 and $10,245, at June 30, 2014 and 2013, respectively. This subordinated debt is subordinate to all other debt of the individual subsidiary. Payment terms can be accelerated only if the respective subsidiary fails to make interest payments, uses proceeds for a purpose other than that stated in the debt agreements, or ceases its normal operations. The subordinated debt maturity dates range from 2014 to 2018; however, the actual maturity dates are automatically extended each year unless the lender exercises its rights to set the final maturity date.

(11) Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes as of June 30, 2014 and 2013: 2014 2013 Organization programs $ 13,917 12,969 Headquarters building 7,083 7,245 $ 21,000 20,214

24 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

(12) Permanently Restricted Net Assets The Organization applies ASC Subtopic 958-205, Not-for-Profit Entities, Presentation of Financial Statements in accounting for their permanently restricted net assets. The Organization has interpreted UPMIFA as requiring the preservation of the original gift as of the gift date of donor restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The earnings on the donor restricted endowment fund are classified as temporarily restricted net assets until those amounts are appropriated for expenditure in a manner consistent with standard of prudence prescribed by UPMIFA. During the fiscal year ended June 30, 2014, the permanent restriction of $20 was released from a subsidiary by the donor and transferred to Mercy Corps.

(13) Obligations under Operating Leases The Organization leases office space under operating leases that require payments through 2024. The leases contain annual escalation clauses at fixed percentages or based on the consumer price index. At June 30, 2014, the Organization’s aggregate minimum annual operating lease commitments are as follows: 2015 $ 693 2016 601 2017 565 2018 515 2019 495 Thereafter 2,000 $ 4,869

Total rent expense was $4,469 and $4,812 for the fiscal years ended June 30, 2014 and 2013, respectively. A majority of this rent expense relates to facilities that are not under a formal lease agreement.

(14) Commitments and Contingencies The Organization receives a substantial portion of its funding in the form of grants from the U.S. government. These grants contain certain compliance and internal control requirements that, if violated, may result in the disallowance of certain costs incurred under the grant programs. Additionally, the Organization is involved in various legal proceedings and claims arising in the normal course of business. As of June 30, 2014 and 2013, the Organization recorded a contingent liability of $1,134 and $1,001, respectively, for potential claims and disallowances based on management’s review of prior history and assessment of the current status of grant programs.

25 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

While it is not possible to determine the ultimate liability, if any, in these matters at this time, in the opinion of management, such matters will not have a material adverse effect on the financial condition of the Organization.

(15) Employee Benefit Plan The Organization has a defined contribution plan under Internal Revenue Code Section 403(b) for employees who meet the eligibility conditions. Employees are eligible to make voluntary pretax contributions beginning the first day of the month following their employment date. Employees are eligible to receive employer contributions equal to 6% of gross salary after one year of service. The Organization’s contributions to the plan for the years ended June 30, 2014 and 2013 amounted to $1,213 and $1,146, respectively.

The Organization also has an employee benefit plan for certain third-country nationals who are otherwise ineligible for the defined-contribution plan under Internal Revenue Code Section 403(b). These employees are eligible to receive employer contributions equal to 6% of gross salary after one year of service. The Organization’s contributions to the program for the years ended June 30, 2014 and 2013 amounted to $347 and $283, respectively.

Within the various countries in which the Organization operates outside the United States, most employees are citizens of the host country. These employees are generally not eligible for the Organization’s defined contribution plan or for the employee benefit plan for third-country nationals; however, they are eligible for certain local government sponsored plans appropriate for that country.

(16) Related Parties Mercy Corps Scotland (MCS) is a nonprofit corporation registered in the United Kingdom. MCS has a separate board of directors and manages its own programs. MCS possesses legal and fiscal responsibility and final oversight for projects implemented with grants and contributions that it receives from donors and government agencies. MCS has a clear and unequivocal responsibility to ensure that any program it supports or undertakes falls within the scope of its activities as set forth under Scottish charity legislation and that all funds are used appropriately. The Organization does not and cannot exert direct financial or operational control over MCS, and as such, MCS is not included in the Organization’s consolidated financial statements.

MCS and the Organization share the same mission, purpose, and values as partners in an international network of colleagues working together to fulfill the basic purpose of the Organization’s programs worldwide. MCS and the Organization work closely together as affiliates and, in some instances, both organizations will pool administrative and technical resources for the benefit of their respective projects. In such cases, an invoice for the actual costs incurred will be sent between MCS and the Organization. Additionally, the Organization will advance cash to the field on behalf of MCS to facilitate program cash management. MCS will reimburse the Organization for these advances on a monthly basis.

The Organization entered into a Memorandum of Understanding (MOU) with MCS on April 14, 2005. This MOU states that the Organization will assume any of MCS’ financial liabilities that might arise from 26 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

donor disallowances. Additionally, the Organization has agreed to indemnify MCS for all expenses related to material aid transactions in Europe. As of June 30, 2014 and 2013, the Organization is not aware of any material known or contingent donor disallowances arising from program activities carried out by MCS.

As of June 30, 2014 and 2013, the net amount due from MCS and other affiliates was $7,873 and $8,864, respectively.

(17) Significant Sources of Revenue and Concentration of Risk (a) Significant Sources of Revenue The Organization receives a majority of its funding through grants from the U.S. government. A reduction in the amount of grants available or in the Organization’s ability to receive government grants would have a material impact on its programs and operations.

(b) Concentration of Risk For cash held in the United States, the Organization maintains its cash in commercial banks that are in excess of the Federal Deposit Insurance Company (FDIC) limits. Management believes the risk associated with balances in excess of FDIC limits is minimal.

In order to fulfill grant agreements and maintain ongoing operations, the Organization maintains cash balances inside foreign countries and in local currencies. The Organization had cash deposits of 38.3% and 35.4%, in the Organization’s foreign locations, of which 15.9% and 11.1% was held by the Organization’s MFI’s, as of June 30, 2014 and 2013, respectively.

(18) Subsidiary Entities Mercy Corps is required to consolidate certain entities under the guidance of Financial Accounting Standards Board (FASB) ASC Topic 810, Consolidation. However, Mercy Corps has limitations on the use of the assets and is not directly obligated for the liabilities of these consolidated subsidiaries under the laws in place in the foreign jurisdiction of each of these subsidiaries.

27 (Continued) MERCY CORPS AND AFFILIATES Notes to Consolidated Financial Statements June 30, 2014 With comparative information as of and for the year ended June 30, 2013 (In thousands)

The summarized statement of financial position and statements of activities of the significant foreign subsidiaries of Mercy Corps before consolidation is as follows: Kompanion Financial MICRA Group, LLC PATRA’s Indonesia Total Total operating revenue $ 26,018 155 187 26,360 Total operating expense (26,477) (132) (175) (26,784) Nonoperating gain (loss) 512 6 (41) 477 Net gain (loss) $ 53 29 (29) 53 Total assets $ 99,337 1,507 629 101,473 Total liabilities (84,619) (278) (469) (85,366) Total equity $ 14,718 1,229 160 16,107

Mercy Corps continues to establish new entities to invest in new technology, business models and social enterprises to provide transformational opportunities for overcoming poverty. The following entities are yet to have significant activities, but are controlled by Mercy Corps and have therefore been consolidated as of June 30, 2014:

Mercy Corps India was formed in August 2010 as joint-stock company to carry out operations in India.

Mercy Corps Egypt, LLC was formed in August of 2012 to establish a field office and operations in Egypt.

Yayasan Mercy Corps Indonesia was formed in February 2012 to further the mission in Indonesia.

Kompanion Development was formed in 2008 to assist with development in Kyrgyzstan.

Mercy Corps China Holdings, LLC was formed in 2013 to own a Chinese wholly foreign owned enterprise established under Chinese law to provide services in furtherance of the Mercy Corps mission.

Custom Clouds Public Benefit Corporation was formed in 2013 to promote the creation of economic and employment opportunities in developing countries by catalyzing sustainable small business growth through the provision of Web marketing and other cloud based solutions and services.

Total combined net assets of the six entities listed above are $(77) and $50 as of June 30, 2014 and 2013, respectively.

(19) Subsequent Events The Organization has performed an evaluation of subsequent events through October 31, 2014, which is the date the consolidated financial statements were available to be issued and have determined there are no additional disclosures needed.

28 MERCY CORPS AND AFFILIATES Supplemental Schedules – Mercy Corps June 30, 2014 With comparative information as of and for the year ended June 30, 2013

The following schedules I and II are a presentation of the financial position and financial activities and changes in net assets for Mercy Corps on an unconsolidated basis. These amounts are included as part of the consolidated financial statements of Mercy Corps and affiliates for the fiscal year ended June 30, 2014.

29 Schedule I MERCY CORPS AND AFFILIATES Supplemental Schedule – Mercy Corps Statement of Financial Position June 30, 2014 With comparative financial information as of June 30, 2013

Assets 2014 2013 Cash $ 55,056 54,008 Grants and accounts receivable 18,129 13,570 Due from unconsolidated affiliates, net 13,152 14,533 Inventories 5,833 7,503 Prepaid expenses, deposits, and other assets 5,641 4,440 Pledges receivable, net 2,512 955 Notes receivable 400 — Investments 8,835 8,085 Program-related investments 18,870 18,922 Property and equipment, net 7,493 8,376 Total assets $ 135,921 130,392 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 31,398 24,473 Deferred revenue 37,385 37,388 Long-term debt 306 324 Total liabilities 69,089 62,185 Net assets: Unrestricted 45,832 47,993 Temporarily restricted 21,000 20,214 Total net assets 66,832 68,207 Total liabilities and net assets $ 135,921 130,392

See accompanying independent auditors’ report.

30 Schedule II MERCY CORPS AND AFFILIATES Supplemental Schedule – Mercy Corps Statement of Activities Year ended June 30, 2014 With comparative financial information for the year ended June 30, 2013

Temporarily 2013 Unrestricted restricted Totals Total Operating support and revenue: Public support and revenue: Government grants $ 171,160 — 171,160 157,913 Material aid 12,406 — 12,406 11,099 Material aid – monetized 9,924 — 9,924 9,200 Total public support and revenue 193,490 — 193,490 178,212 Private support and revenue: Other grants 45,505 11 45,516 31,851 Contributions 22,347 13,336 35,683 24,738 Gift in kind – services 438 — 438 504 Total private support and revenue 68,290 13,347 81,637 57,093 Other revenue: Interest income 240 — 240 369 Other revenue 603 — 603 1,417 Total other revenue 843 — 843 1,786 Net assets released from restriction 12,561 (12,561) — — Total operating support and revenue 275,184 786 275,970 237,091 Operating expenses: Program services: Humanitarian assistance – relief 86,172 — 86,172 62,074 Humanitarian assistance – recovery 15,678 — 15,678 16,364 Livelihood/economic development 48,523 — 48,523 53,559 Civil society and education 46,267 — 46,267 44,059 Health 33,474 — 33,474 25,619 Total program services 230,114 — 230,114 201,675 Supporting services: General and administrative 32,588 — 32,588 28,004 Resource development 14,787 — 14,787 11,707 Total supporting services 47,375 — 47,375 39,711 Total operating expenses 277,489 — 277,489 241,386 Change in net assets from operations (2,305) 786 (1,519) (4,295) Nonoperating revenue and expenses, net: Foreign currency exchange loss, net (1,418) — (1,418) (479) Realized and unrealized gain on investments, net 1,562 — 1,562 536 Total nonoperating revenue and expenses, net 144 — 144 57 Change in net assets (2,161) 786 (1,375) (4,238) Net assets at beginning of year 47,993 20,214 68,207 72,445 Net assets at end of year $ 45,832 21,000 66,832 68,207

See accompanying independent auditors’ report.

31